As outlined in my book, I also argue in a similar vein. Citing the Quranic verses 2:275-276, 3:130, and 2:278-280, I argue that the Quran’s sanction of trading and condemnation ofis exploitative. Note, however, that though the Quran has permitted trading, it has not sanctioned exploitative trading, where the seller can dictate the price , and where the buyer can dictate the price .
I also make the point that while extending a loan, the lender should consider the financial situation of the borrower. The Arabian practice ofis suggestive of the fact that the lenders at that time of history did not consider the plight of the borrowers.
I also point out that we should make a distinction between nominal and real interest, which Muslim scholars generally ignore. The same level of nominal interest leads to a lower real interest in an inflationary situation and a higher real interest in a deflationary situation. This will hurt the lender or the borrower respectively if the nominal level of interest is not adjusted for inflation or deflation.
That brings us to the major causes that give rise to interest. As just discussed, inflation is one condition that gives rise to positive nominal interest. A second reason for interest to arise is people’s time preference – valuing goods and money at the present moment more than at a future date. If, for example, a person would like to exchange $100 today for $110 a year after, his rate of time preference would be 10 percent.
A third, and perhaps the most important, reason for interest to arise is a return or profit that can be earned on capital invested in any economic activity such as trading, production, or provision of any service. A producer would like to borrow money to use in his enterprise so long as he earns a return at the margin higher than, or at least equal to, the rate of interest he pays on borrowed capital.